(Adds comments by PM, commission, updates crown)
By Peter Laca and Marcin Grajewski
BRATISLAVA/BRUSSELS, April 16 (Reuters) - Slovakia passed
the inflation test for adopting the euro in March, leaving an
uncertain outlook for future price growth as the single big
obstacle in its bid to join the euro area next year.
The 12-month average inflation was 2.2 percent in March,
comfortably below the permitted ceiling of 3.2 percent, figures
from European Union statistics office Eurostat showed on
Wednesday.
The European Commission will say on May 7 whether Slovakia,
a European Union member since 2004, can adopt the currency now
shared by 15 nations.
Before making a final decision, it will use economic
forecasts to be issued on April 28 to see if Slovakia is likely
to keep inflation low into the future.
"In view of the inflation figure, indeed, it is below the
reference value, but according to the treaty we must assess not
just whether it is below the reference value but if it is below
that value in a sustainable way," Commission spokeswoman Amelia
Torres said.
Inflation calculated by European Union methodology was 0.3
percent on the month, raising the annual rate to 3.6 percent,
the highest since December 2006, from 3.4 percent in February.
The year-on-year figure exactly matched inflation in the
euro zone, which was revised up from a preliminary reading of
3.5 percent.
Slovak Prime Minister Robert Fico said the inflation
criterion ceiling was rising faster than actual inflation in the
central European country.
"Today there is no reason to doubt that the Slovak Republic
would be able to secure good state of public finances but also
the rate of inflation in the upcoming period," he said.
FIXED CURRENCY, HIGHER INFLATION
The worries over the inflation outlook stem from the fact
that many poorer EU countries catching up with the core of the
euro zone have been able to keep prices low with the help of
appreciating currencies which cut costs of imported goods.
Countries that have fixed their currencies removed this
channel of real convergence with the euro zone and have seen
their inflation rise, such as the Baltic states and new euro
zone member Slovenia.
The sustainability of low inflation is considered a
necessary condition for euro adoption, because policymakers have
very limited room to correct price swings when they give up
their independent monetary policy.
"The key debate will include the impact of the strengthening
Slovak crown against the euro on inflation," said Jaromir
Sindel, economist at Citibank in Prague.
"The European Central Bank might turn slightly negative
because of this, but it has only an advisory role ... I think
the politics (supporting Slovak entry) will prevail," he said.
Sindel added that Slovakia, whose economy soared by 10.4
percent last year, should revalue the crown currency's parity
rate to the euro, now at 35.4424, prior to fixing the crown
irrevocably to the euro to limit the inflation pressure.
The crown currency dipped to 32.360 by 1200 GMT <EURSKK=>
from 32.290 ahead of the release, but still outperformed other
currencies in central Europe.
The EU has urged Slovakia to tighten fiscal policy to
counter price pressures that may arise after the country gives
up its independent monetary policy.
The government cut the ceiling for the 2008 public finance
deficit and set a more ambitious fiscal plan for 2009-2011.
For Eurostat report, click on.................. []
For Slovak CPI table, click on................. []
For Slovak INSTANT VIEW, click on.............. []
For euro zone inflation table, click on........ []
For Slovak PM Fico comments, click on.......... []
For Commission comments, click on.............. []
For Slovak c.bank comments, click on........... []
(Additional reporting by Martin Santa in Bratislava; writing by
Peter Laca and Jan Lopatka; editing by Stephen Nisbet/David
Christian-Edwards)
